Fast Company

Biofuel Subsidies: Good, Bad or Just Wrong?

Are biofuels an elitist mechanism that ultimately raises poverty and should be ended until a better solution can be conceived of? Or are rising food prices just a temporary set back, one that will be compensated for by future benefits?

Biofuel subsidies have long been a contentious proposition.

Advocates state that they are fundamental to developing cleaner energy alternatives and that, long term, biofuels will create new revenue options for farmers.

Opponents believe that biofuels contribute significantly to world food shortages, raise prices, are detrimental to the interests of the world's poor, and/or are in fact bad for the environment as poor farmers are converting forests into fields to grow crops.

Across many developing countries, new policies and procedures incentivize the production of crops that will be used for fuel, further compounding the problem of food shortages.

Between 2000-2007, the production of biofuels from crops that could have been used for food, increased by over 200%. Earlier this year, the World Food Program reported that there has been a 40% increase in the cost of food and asked for $755 million, to supplement its initial budget of $3.1 billion, in order to combat the increase in prices.

Industry experts state that over one billion people are now suffering from hunger worldwide. A report released earlier this year by the OECD revealed that biofuels have a minor impact on curbing the production of greenhouse gases and bolstering countries' energy security. They do, however, have a significant impact on world crop prices.

Most recently, the UN's Food and Agriculture Organization has joined the growing legion opposing biofuels.

Current policies must be “urgently reviewed in order to preserve the goal of world food security, protect poor farmers, promote broad-based rural development and ensure environmental sustainability,” writes Jacques Diouf, the executive director of the UN's FAO.

Are biofuels an elitist mechanism that ultimately raises poverty and should be ended until a better solution can be conceived of? Or are rising food prices just a temporary set back, one that will be compensated for by future benefits?

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12 Comments

  • Sampath Srivatsan

    Heather you are right. I think the government needs to focus its directions on technology. It should provide tax breaks and subsidies to companies, who have a better technological solution for an alternate energy than oil from food crops. The idea of producing biofuel from the food crops is not the right solution to our current energy issue. Today the farmers have become more money centric as they like to convert all their farms to fuel crop. It may be beneficial for the farmer monetarily but loss for the nation.

  • Heather Sherbert

    JT we also have to remember that suvsidies may not truly be the answer considering the current US government's financial deficit's size. I agree with David's first comment, that a tax break may be a more appropriate solution. Another option is for the creation of biofuels to be stopped and efforts focused on other potential and more cost effective solutions to cleaner energy.

  • JT Slayton

    Heather, it would be great if farmers could plant both food and bio-fuel crops so that they have a cash crop and we have food. I would also like to see farmers earn more for food crops in general. Perhaps the “middle-men” between the farmers and consumers could be encouraged to re-examine their production costs so that they do not have to add to the cost of food. I would love to see government subsidies go towards reassessing business efficiency for “middle-men” as well as other types of businesses. Now, a move like that would be a win-win situation for everybody.

  • Heather Sherbert

    Tiffany brings up an excellent point. Local farmer's have enough trouble staying afloat as is. Are we really going to try and hinder them more by taking away another potential source of income? Isn't there a way that the government could regulate that farmers need to plant both crops for bio-fuel production in addition to normal crops for food consumption in order to ensure that we are still providing food sources in addition to allowing the farmers to gain money for the crops they plant to be used in bio-fuels? This could be done till at least a better solution is created for energy sources.

  • JT Slayton

    The issue of promoting bio-fuel production through government aid is truly difficult to address. It is a question of long term verses short term benefit for people and the planet. On one hand, government aid and bio-fuel industry growth are helping struggling farmers who have been underpaid for food production. On the other hand, the potential degradation to the environment by artificially modifying species and increasing chemical use on land is frightening to say the least. It seems like the only solution will be the development of an energy solution that makes bio-fuel obsolete.

  • JT Slayton

    I agree that we should wait for other alternatives and that food production is more important than bio-fuels. However, the use of land for bio-fuels will continue to expand until more efficient energy alternatives are developed. In the meantime, Sampath touched upon my main concern with bio-fuels: soil degradation due to chemical use. Global guidelines and soil testing should be established to preserve soil integrity so that the soil is not detrimental to potential food crops. It will help farmers preserve their ability to return to food production, if they choose. Also, during these times of economic and environmental uncertainty, it is essential that we preserve our resources, such as soil integrity, as a global community now and for future generations.

  • Jeffrey Krasney

    In the 1970’s green-based technology was considered as an “alternative” technology; and for good reason. Green-based technology was far too expensive; that is, green-based technology did not have widespread political support, and very few, large, established companies were embracing the opportunity.
    Today, green-based technology has become more economically feasible, as the developed and developing world continue to face unstable, increasing energy prices; shortages within food and other mineral resources; yet demand an increased and improved quality of life and lifestyle choices for citizens; and economic equality – for its citizens within China, India, developing countries, as well as the United States. The growing, energy-hungry middle–class of developing countries requires viable alternatives to fossil fuels, as an energy source. Governments at all levels must embrace and shift their tax, financial and regulatory assistance by bolstering alternative technologies (including green-based technologies and industries) by advocating a broader system of supportive policies and beneficial incentives.

    More aggressive tax and public policies are necessary to shift from conventional sources of fossil fuels; and to promote newer alternative technologies. In other words, although governments would provide subsidies for conventional energy-based sources, such subsidies would decline over time; while creating an increased favorable climate consisting of carefully targeted subsidies that would enable cost parity between an emerging market technology and today’s prevailing prices. Such re-thinking will eventually have more justification as a more attractive option, especially if government limits, but encourages its intervention.

  • Heather Sherbert

    Jeff I agree with you that unless companies that are currently creating bio fuels can find a way to produce and distribute it in more efficient ways, then it is not going to be a practical alternative source of energy. In addition, if we are not able to prove that the opportunity costs of losing out on potential crops for food purposes is greater than the amount of energy being produced, then it is going to be hard to increase biofuel consumption.

  • Heather Sherbert

    Jeff I agree with you that unless companies that are currently creating bio fuels can find a way to produce and distribute it in more efficient ways, then it is not going to be a practical alternative source of energy. In addition, if we are not able to prove that the opportunity costs of losing out on potential crops for food purposes is greater than the amount of energy being produced, then it is going to be hard to increase biofuel consumption.

  • Jeffrey Krasney

    I would agree with Saabira, the potential of biofuels, as an alternative to carbon-based fossil fuels, despite its advantages, may have a difficult time finding a strategic rostrum. As an alternative form of energy, biofuels increase energy performance. Nevertheless, biofuels continue to present economic; and more specifically, “bottom-line” cost challenges. For instance, one of the immediate struggles facing biofuel producers is fuel that is produced by the producers, often is frequently shipped to distribution points hundreds of miles away; and then, shipped back to filling stations. In other words, transportation; specifically, trucking costs to transfer or move the biofuel, becomes an additional expense – and as such, the cost is an expenditure added to the overall cost of production. Additionally, the distribution centers are owned by oil companies – which control the distribution networks. Thus, since the biofuel companies may not own a direct outlet to their customers, those same biofuel companies end up negotiating with the larger filling station chains.

    Nevertheless, the global biofuel market will continue to grow. A world facing unstable energy prices needs innovative alternative sources to help shift the business, political and economic landscape. As a result, cities, states and various countries will continue to seek increasing their investments in cleaner energy; such as biofuels, as consumers are demanding cleaner products. Even though new advancements are on the precipice, that is, poised for further development, including new methods of refining; distribution costs remain an ongoing and continued sense of concern; and remain a cost disadvantage. However, if entrepreneurs and companies can liberate and unravel such a “fixed cost;” then, biofuels can become part of a forward-thinking energy solution; acting as a more efficient and less polluting alternative.

  • Sampath Srivatsan

    Bio fuels are good sources of alternate cleaner energy and a very profitable option for farmers On the other hand, producing bio-fuels causes serious ramifications to human beings. I feel providing subsidies to the bio fuels is totally wrong since the cost of producing them is not price worthy.
    Analysis and reports from magazines show that producing bio-fuels has driven the cost of food around the world. Farmers growing bio fuels crops, know that it is not used for human consumption as a result they use excessive amounts of chemicals to increase productivity, which ultimately degrades the soil and also the water table. Bio fuels make farmers prefer cash crops(corn) than primitive crops such as wheat, soy bean etc, Rising food prices also constitute one of the main reasons for the inflation in the economy. I strongly think it is not late to review “the policies” for farming and environment sustainability. .We have to increase productivity of food grains to fight hunger in the world, than producing bio-fuels to run automobiles. I agree with Saabira, that we need to end the bio-fuel mechanism option until a viable alternate source is found.

  • David Mullings

    All biofuels are not the same. No one eats switchgrass and cellulosic ethanol using the parts of plants that humans don't eat makes sense.

    I still favour tax breaks instead of subsidies though. The government itself need not spend money for things that private business is interested in solving because of the profit potential.